Apple paid $2.6B lion's share of $4.5B Nortel patent acquisition

Apple supplied more than half of the $4.5 billion paid by a consortium of companies to acquire Nortel's patent portfolio, new regulatory filings show.

Apple revealed in its 10-Q filing this week that it paid about $2.6 billion in the Nortel patent sale, analyst Maynard Um with UBS highlighted in a note to investors on Thursday. That's a sum greater than the $2 billion Apple was rumored to have paid shortly after the deal was announced.

Other members of the consortium included Microsoft, Research in Motion, Sony Ericsson, and EMC. In late June, the companies won a bidding war to obtain more than 6,000 patents from Nortel, which filed for bankruptcy in January of 2009.

Previous claims from Reuters suggested that RIM paid $770 million for its share of the patent portfolio, while EMC allegedly contributed $340 million.

The consortium beat out Google, which had established the minimum bid for the auction with a starting offer of $900 million. A number of bidders were interested in the patent trove because of key inventions related to the high-speed long-term evolution 4G wireless standard.

Apple's 10-Q made no mention of the licensing agreement it entered into with rival Nokia in June. That deal includes ongoing royalties in addition to a one-time lump sum payment, both of which remain secret. But evidence in Nokia's quarterly earnings issued on Thursday suggests that Apple's share was no more than $600 million.

Beyond the Nortel patents and Nokia agreement, Um also noted that the 10-Q reveals Apple's warranty accruals were higher than claims for the fourth straight quarter. For the past year, Apple has "overaccrued" claims by about $600 million.

"While we recognize that accruals are for estimated future claims and that claims increased sequentially, we believe the company still has a healthy level of accruals unless claims were to increase significantly," he wrote.

If Apple were to reduce its reserves in the same magnitude it has with $600 million in claims over the past year, Um estimates the company would see a gross margin benefit of 200 basis points.

I personally suspect it was sort of a "tag team" agreement. Apple had decided the patents weren't worth more to them than around $2.5B, evidenced by their team building once the figures bid exceeded that. Microsoft had a figure in mind, as did RIM, etc. Once the Goggle bid exceeded the value to Apple, it was time for the next player on the team to step up and contribute. Then the next and the next as needed.

So, If Apple paid the most does that mean that they will benefit the most, or have exclusive rights to some of the patents?

Seems illogical for them to pay to benefit others in the consortium....

The patents are usually split up, and I believe Apple got all the patents relating to LTE.

Depending on how the deal went down, the members of the consortium may get a free license to use the IP of those patents that they did not outright buy. Any other companies that want to license the IP will have to pay royalties to Apple.

But, you never really know... anything is possible.

Disclaimer: The things I say are merely my own personal opinion and may or may not be based on facts. At certain points in any discussion, sarcasm may ensue.

So, If Apple paid the most does that mean that they will benefit the most, or have exclusive rights to some of the patents?

Seems illogical for them to pay to benefit others in the consortium....

Google is an unusual competitor. Their only real business is advertising, but since advertising can be appended to almost anything and pays for everything they seem intent on offering free versions of all possible software, while at the same time working with hardware vendors to compete in that arena as well. So they're up against everyone, but with a business model that masks their true ambitions and intentions.

At the same time, they've proven themselves to be somewhat contemptuous of IP and copyright concerns, using their "free and open" mantra to paint themselves as champions of an egalitarian future while jealously guarding their actual sources of revenue-- the algorithms that undergird their advertising and page ranking business.

So you end up with an unusually broad coalition of businesses-- content owners, software vendors, online service providers, hardware manufacturers, IP rights holders, networking companies, etc.-- who have a vested interested in limiting the scope of Google's sprawl. Google wants nothing less than each and every digital transaction to pass through their servers, which is to say the entirety of modern life. It's not surprising that the rest of the world might take exception to that, and that stark reality might make for some strange bedfellows.

They spoke of the sayings and doings of their commander, the grand duke, and told stories of his kindness and irascibility.

So you end up with an unusually broad coalition of businesses-- content owners, software vendors, online service providers, hardware manufacturers, IP rights holders, networking companies, etc.-- who have a vested interested in limiting the scope of Google's sprawl. . .

Google wants nothing less than each and every digital transaction to pass through their servers, which is to say the entirety of modern life. It's not surprising that the rest of the world might take exception to that, and that stark reality might make for some strange bedfellows.

FWIW, not many years ago Microsoft had similar ambitions. I can't say that they didn't worry me at all back then -- far from it -- but the lesson to be learned from Microsoft's failure to deliver, is that ambitions don't necessarily create realties.

FWIW, not many years ago Microsoft had similar ambitions. I can't say that they didn't worry me at all back then -- far from it -- but the lesson to be learned from Microsoft's failure to deliver, is that ambitions don't necessarily create realties.

But they often do create successes too. A failure by someone else doesn't mean you will. Apple knows that.

FWIW, not many years ago Microsoft had similar ambitions. I can't say that they didn't worry me at all back then -- far from it -- but the lesson to be learned from Microsoft's failure to deliver, is that ambitions don't necessarily create realties.

True, but I think the combination of internet as totalizing construct and Google's strategy of using advertising as both the means and funding source for insinuating themselves into every aspect of that construct puts them on a different footing than the Microsoft of old. Google is everywhere and nowhere and ostensibly free, with the true cost of their interlocking network of subsidized services and conduits only calculable once it's so entrenched as to be more or less the world itself.

Doesn't guarantee success, of course, but I don't know if we have historical antecedents for what they're doing that provide a useful roadmap.

They spoke of the sayings and doings of their commander, the grand duke, and told stories of his kindness and irascibility.

But they often do create successes too. A failure by someone else doesn't mean you will. Apple knows that.

Indeed - and the fact is that Google almost certainly will end up with far more of the online experience than MS could ever hope to capture. But it's not clear how much that would bother a hardware/software integrator like Apple.

Google wants to turn Facebook into the new myspace, and with a platform of 100million devices they have a good chance. Suppose however they did a deal with Apple and get deep G+ integration into iOS. Suddenly you're looking at 300million G+ enabled mobile devices - and Facebook is suddenly looking very very lonely.

Apple might be more than happy to do such a deal, if Google agreed to get off their lawn.

But they often do create successes too. A failure by someone else doesn't mean you will. Apple knows that.

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Originally Posted by addabox

True, but I think the combination of internet as totalizing construct and Google's strategy of using advertising as both the means and funding source for insinuating themselves into every aspect of that construct puts them on a different footing than the Microsoft of old. Google is everywhere and nowhere and ostensibly free, with the true cost of their interlocking network of subsidized services and conduits only calculable once it's so entrenched as to be more or less the world itself.

Doesn't guarantee success, of course, but I don't know if we have historical antecedents for what they're doing that provide a useful roadmap.

Maybe, but just. During the 1990s and 2000s Microsoft's ubiquity was total and their ambition to roll anything and everything of value into Windows plainly advertised. They controlled virtually all of the gateways and they were setting themselves up to collect tolls. "Free" in name if not in reality was part of their strategy as well. They even had a name for it: "embrace and extend."

Experience suggests that total dominance is harder to accomplish than it looks. Microsoft wasn't good enough to make it happen with a 95% market share. I doubt Google is good enough either.

Maybe, but just. During the 1990s and 2000s Microsoft's ubiquity was total and their ambition to roll anything and everything of value into Windows plainly advertised. They controlled virtually all of the gateways and they were setting themselves up to collect tolls. "Free" in name if not in reality was part of their strategy as well. They even had a name for it: "embrace and extend."

Experience suggests that total dominance is harder to accomplish than it looks. Microsoft wasn't good enough to make it happen with a 95% market share. I doubt Google is good enough either.

MS didn't fail to Embrace and Extend, MS got whacked over the head with anti-trust investigations for being all too successful with it. Arguably MS problem wasn't that it didn't have enough strength with 95% of the share, but rather that it had too much.

Google on the other hand has a nice 40% of the smartphone market, so it is far far less constrained with how it uses it.

MS didn't fail to Embrace and Extend, MS got whacked over the head with anti-trust investigations for being all too successful with it. Arguably MS problem wasn't that it didn't have enough strength with 95% of the share, but rather that it had too much.

Google on the other hand has a nice 40% of the smartphone market, so it is far far less constrained with how it uses it.

The antitrust case (US v Microsoft) changed less than most assume. The final settlement was very weak. It took away nothing Microsoft had already gained by illegal means and prevented them from doing very little. They had to cough up some big settlements. What really changed was the marketplace, and the emergence of tough competitors, such as Apple and Google. Neither one was able to accomplish anything after the settlement that they would not have been able to accomplish without the settlement. Microsoft's failures since that time are far more a function of being too slow to understand and react to changes in the marketplace than anything any government agency did. I see some of the same issues with Google. They are attempting to do everything at once, and consequently they aren't doing anything particularly well. I suspect that once their skien plays out that they won't have a real Act II -- just as Microsoft did not.

The antitrust case (US v Microsoft) changed less than most assume. The final settlement was very weak. It took away nothing Microsoft had already gained by illegal means and prevented them from doing very little. They had to cough up some big settlements. What really changed was the marketplace, and the emergence of tough competitors, such as Apple and Google. Neither one was able to accomplish anything after the settlement that they would not have been able to accomplish without the settlement. Microsoft's failures since that time are far more a function of being too slow to understand and react to changes in the marketplace than anything any government agency did. I see some of the same issues with Google. They are attempting to do everything at once, and consequently they aren't doing anything particularly well. I suspect that once their skien plays out that they won't have a real Act II -- just as Microsoft did not.

You're missing many key points. First MS also had to face an EU investigation which resulted in both forced unbundling and limitations to their pricing practices - along with considerable fines. They were compelled to license key patents to Linux distros at a tiny fraction of what they had been demanding, or in some cases for free. Their whole business was put under a microscope and they were forced to limit the aggressiveness of they approach, or see it limited for them.

Once the initial findings of fact were in place that MS possessed a monopoly their whole business became different, actions which were legal before became illegal. People frequently underestimate how big the effect was on MS because no crippling remedy was ever demanded, but while the punishment may not have fitted the crime, MS was far more constrained after than it had been before.

The fact that when you look Dell's server page it will offer you 3 different versions of Linux is proof of how much MS has had to change their business practices.

Maybe, but just. During the 1990s and 2000s Microsoft's ubiquity was total and their ambition to roll anything and everything of value into Windows plainly advertised. They controlled virtually all of the gateways and they were setting themselves up to collect tolls. "Free" in name if not in reality was part of their strategy as well. They even had a name for it: "embrace and extend."

Experience suggests that total dominance is harder to accomplish than it looks. Microsoft wasn't good enough to make it happen with a 95% market share. I doubt Google is good enough either.

Sure, all true enough. I guess I have the sense that the internet (or de facto control thereof) is an order of magnitude more significant than merely controlling the dominate computing platform, with likely vastly more far reaching consequences.

It remains true that ambition does not equal results.

They spoke of the sayings and doings of their commander, the grand duke, and told stories of his kindness and irascibility.

You're missing many key points. First MS also had to face an EU investigation which resulted in both forced unbundling and limitations to their pricing practices - along with considerable fines. They were compelled to license key patents to Linux distros at a tiny fraction of what they had been demanding, or in some cases for free. Their whole business was put under a microscope and they were forced to limit the aggressiveness of they approach, or see it limited for them.

Once the initial findings of fact were in place that MS possessed a monopoly their whole business became different, actions which were legal before became illegal. People frequently underestimate how big the effect was on MS because no crippling remedy was ever demanded, but while the punishment may not have fitted the crime, MS was far more constrained after than it had been before.

The fact that when you look Dell's server page it will offer you 3 different versions of Linux is proof of how much MS has had to change their business practices.

All after the fact, really -- especially the EU which while it imposed tougher sanctions, was late to the party. But by the time any of this happened, Microsoft had already effectively knocked out/locked out any number of competitors and potential competitors. They had a huge and virtually uncontested market share, tons of money, mindshare, and expertise. The contesting didn't come from OEMs selling Linux boxes, it came from Apple running rings around them in personal computing and Google beating the stuffing out of them in search. None of this occurred because of the antitrust cases, it happened because Microsoft's leadership was fundamentally lame. Still is.

I was a huge advocate for the antitrust case against Microsoft, at the time. I had a significant public profile on the issue in fact. But as the case wore on I could see how it was not in the end going to matter very much, that it had taken far too long to resolve and the sanctions were way too weak. So it's not a matter of underestimating, it's a matter of understanding.

All after the fact, really -- especially the EU which while it imposed tougher sanctions, was late to the party. But by the time any of this happened, Microsoft had already effectively knocked out/locked out any number of competitors and potential competitors.

Yes, they'd successfully used E&E&E to kill off netscape and a bunch of others, and they would have continued to use it as a successful strategy. You were arguing that their tactics hadn't worked, but in fact they worked fine the problem was that after killing off netscape and real networks they didn't have enough freedom of manoeuvre to kill off iTunes, Google, Firefox etc.

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The contesting didn't come from OEMs selling Linux boxes, it came from Apple running rings around them in personal computing and Google beating the stuffing out of them in search. None of this occurred because of the antitrust cases, it happened because Microsoft's leadership was fundamentally lame. Still is.

Right, and why didn't MS finish Apple off by refusing to provide application support? They easily could have done. Why didn't MS attack Google by making IE incompatible with the Google bar and making MS the only built in search option?

Because they were constrained by anti-trust concerns.

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I was a huge advocate for the antitrust case against Microsoft, at the time. I had a significant public profile on the issue in fact. But as the case wore on I could see how it was not in the end going to matter very much, that it had taken far too long to resolve and the sanctions were way too weak. So it's not a matter of underestimating, it's a matter of understanding.

So your understanding is that a hyper competitive and aggressive firm that had destroyed or out-manoevered some of the greatest names in the industry, suddenly changed at the same time as the anti-trust investigations but it was entirely unrelated to it?

That somehow Ballmer forgot how to destroy firms like Netscape, Novell or Digital Research? Your understanding may be that the anti-trust case was ineffectual, but the DoJ disagrees.

The DoJ assented to the toothless consent decree. It might not have been so had the election of 2000 gone another way, but what happened is what happened. The facts are, the settlement in US v. Microsoft was watered down to nothing and was ineffectual. I believe you'd have a tough time finding anyone who followed this case closely as it moved through the courts (in ultra-slow motion) who would argue otherwise.

Microsoft could have done anything it wanted to Apple, and it did plenty to hobble the company. The idea that it was anything but good business to continue producing Mac software (substandard as it often was) is a myth. Microsoft was under no pressure to do otherwise and certainly not from government regulators. You are forgetting that Apple's famous bargain with Microsoft came in 1997, a year before US v. Microsoft was even filed. Nothing substantive in the relationship between Microsoft and Apple can be found in the Findings of Fact in the case. It simply was not about that, at all.

Nothing "suddenly changed." Apple's resuscitation took years to accomplish, and their flanking maneuvers around the Microsoft desktop stronghold is the stuff of legend. Hardly anybody had even heard of Google before 2000. Microsoft essentially ran out of leverage. They were faced with competing in markets they did not understand. That is the main reason why they lost so much traction. Antitrust action is a bit player. I wish I could say otherwise. I was an strong advocate for the antitrust case. I must admit today that it took too long, got too wrapped up with politics, and produced too few results. Fortunately, the marketplace responded, which ultimately is the desired result anyway.

Nothing "suddenly changed." Apple's resuscitation took years to accomplish, and their flanking maneuvers around the Microsoft desktop stronghold is the stuff of legend. Hardly anybody had even heard of Google before 2000. Microsoft essentially ran out of leverage. They were faced with competing in markets they did not understand. That is the main reason why they lost so much traction. Antitrust action is a bit player. I wish I could say otherwise. I was an strong advocate for the antitrust case. I must admit today that it took too long, got too wrapped up with politics, and produced too few results. Fortunately, the marketplace responded, which ultimately is the desired result anyway.

Ok, now I understand - you view MS through the lens of what happened to Apple, rather than experiencing how their behaviour affected every market participant.

MS certainly didn't run out of leverage, they had a virtual desktop monopoly, they had a virtual browser monopoly, they had plenty of leverage - they just couldn't use it.

Rather than forcing a bundle on OEMs, now Microsoft is able to squeeze out Linux by offering two prices: one price if you include the "We recommend genuine Microsoft Windows" banner at the top of the page featuring the computer and agree not to mention on that same page that you have a Linux version available, or pay several times more for exercising your freedom not to do that.

In short: How many different OSes can you expect to find preinstalled on most PCs?

Answer before the anti-trust suit: 1
Answer after the anti-trust suit: 1

Windows market share has been declining, but largely due to OS X's increase and it's still at ~84%. When you're talking about non-Apple computers, unless you shop at System 76 or ZaReason you're probably getting Windows with it.

You're making the same mistake, you're viewing the continued possession of the desktop monopoly as proof that the anti-trust suit failed. That's the wrong metric because the desktop monopoly is self-sustaining due to strong network effects. The question is, what could microsoft have done with their desktop and browser monopoly had their been no constraint.

They could have continued to change IE in order to make the web essentially a pure MS experience - by introducing 'native web' or patented technologies.

'If Microsoft doesn't enhance the web then there is a nightmare scenario where an OS neutral web platform arises'

Thanks to the DoJ today we live in MS's nightmare scenario. It wasn't because MS was unaware of the possibility, and it wasn't because they lacked the technical skills or platform leverage to prevent it.

If MS had been allowed to control the web in that way then all smartphones would be windows smartphones, because only windows smartphones would be able to give a full web experience. Full web would mean windows web.

I agree with you with regard to browsers. I was addressing only bundling.

I think that they've done pretty well at hanging onto the desktop monopoly, but then I also think that linux on the consumer desktop is a HORRIBLE experience, in fact as a long standing unix guy that's what got me to switch to mac. Of course now the game has changed, Apple seems about to kill the Consumer PC and replace it with the consumer Tablet Computer - a wholly new category where it is the dominant platform.

Linux +Unix in the server space though are doing just fine, and Dell no longer seems to feel the need to keep the Linux options hidden under the counter with the hard core porn. Hopefully in the next decade or so Windows will be completely driven out of the server space - speed the glorious day!

The anti-trust suit no doubt contributed to moving Windows from a 95% share down to its current 88%, but I doubt we'll see go down to the 30% it deserves in terms of quality, security, and overall value relative to alernatives.

There is great doubt. I'd challenge anyone who believes the antitrust case had the affect of reducing Microsoft's Windows market share to demonstrate how, specifically, it caused this to occur. Please refer to the Consent Decree and Final Judgement, these being the actual terms of the settlement with the government. I think when you read these terms you will find that no part of it was directed towards reducing Microsoft's market share, because the case itself was not.

If I had the luxury of working with just one OS I'd probably use OS X exclusively. And I used to feel the same about the Linux experience as you do, until Ubuntu started to mature. With 10.04 and later it's a really nice system.

I went right off Ubuntu after trying to help a friend use it to run a little home NAS. It turned out that the version he had couldn't run samba without rebuilding the kernel - which caused me to facepalm hard. Maybe I should give it a second chance someday, but it just seemed like the linux desktop experience was getting worse not better.

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I refuse to support IIS for my clients. In my shop t's either Linux servers or find another contractor. I don't have the kind of time to spend babying those fragile messes. The horrors of IIS speak for themselves - from The Register:

I wish I could avoid windows servers, unfortunately in finance a lot of software still hasn't made the jump to Linux, so it's Solaris or Windows for me in general - and clients end up with windows because 'it's cheap'.

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Having used Mac, Win, and Linux for many years, I can't understand why anyone would choose Windows. It seems no one really chooses Windows: it's simply what most PCs ship with.

And there we have the Catch 22 of such a dominant lead in market share: because Windows is so entrenched, it remains entrenched. Most of the world uses Windows only because most of the world uses Windows.

The anti-trust suit no doubt contributed to moving Windows from a 95% share down to its current 88%, but I doubt we'll see go down to the 30% it deserves in terms of quality, security, and overall value relative to alernatives.

The anti-trust stopped MS from cementing their monopoly further, but as you say it doesn't magically remove the network effect or consumer inertia. I don't think MS will lose their desktop monopoly anytime soon, but I do think that the iPad will make it increasingly irrelevant. The world will be a safer place for unix geeks

Fortunately, the marketplace responded, which ultimately is the desired result anyway.

You make a very good statement here! I wish I had time to read further into the whole Microsoft vs. US Government suit, but where to find the time? There are so many posts already, and AI isn't the only informative site.